Is Wells Fargo's Stock About To Break Free Of Range?

For almost three years now, the stock of Wells Fargo (WFC) has been rangebound.

Resistance appeared around 34 in 2010-11 and around 36 last year. Support was found near 23 in 2010-11, but switched to 30 to 31 in 2012.

The rise of the support level is a positive development. The current base is now shallower and tighter than those in 2010-11.

Despite being less than 15% deep, the current base looks more like a cup with handle than a flat base. The stock formed a couple of handles, but could not rally from either.

A third handle forming now shows quieter volume than the previous handles, which is desirable. The potential buy point is 35.56.

The base shows some net accumulation, which is good.

Because of the rangebound action, Wells Fargo's Relative Price Strength Rating is a mediocre 49.

The fundamentals, though, have been slowly improving. Return on equity fell as low as 5.2% in 2008, but was 12.5% last year. Ideally, ROE should be 17% or better — a level last achieved at Wells Fargo in 2004-07.

Wells Fargo's EPS Rating is 90, putting the stock in the top 10 percentile in earnings growth. The earnings Stability Factor also has improved. The five-year number is 29, but the three-year number is 5. The range runs from 0 (calm) to 99 (wild). The bank's earnings growth accelerated from 12% to 17% to 22% to 25% the past few quarters.

The Banks-Money Center industry group was No. 19 among 197 groups, as of Friday's IBD. About four months ago, the rating was middle of the pack. Successful investors often restrict their buys to leading groups.

Of the 16 stocks in the group trading above 15 a share, only one has a higher EPS Rating than Wells Fargo — JPMorgan Chase (JPM), at 95.

Wells Fargo announced it is raising its quarterly dividend from 22 cents a share to 25 cents a share, beginning with the March 1 payment. The annualized yield is 2.9%.

The company lowered its quarterly dividend from 34 cents to 5 cents a share during the 2008 financial crisis, but raised it to 12 cents in April 2011.

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03/27/2015 06:19 PM ET

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